RBI issues fresh guidelines over recovery issues

Noor En Ahmed

New Delhi

Sat, 01 Dec 2007: 

Dec 01:  Banks should adopt legal path for all sorts of debt recovery and should be more transparent in terms of distributing loans, said RBI in a press release yesterday. The RBI has receid several complaints from public as per using muscle power and rude behaviour used by recovery agents.

The Reserve Bank of India, RBI on Friday issued a draft guidelines for all private and public sector banks under ‘Mid-Term Review of the Annual Policy for the year 2007- 08’ to check the complaints receiving from the public regarding ‘rude’ behaviour of recovery agents engaged by banks for collecting the debts from the defaulters.

RBI has directed the banks to prefer legal actions against the bank’s defaulter and not to hire local goons for recovering the debts. The India’s Central Bank has also suggested to all banks to run proper training program for all their recovery agents like issuance companies do and to use the ‘Lok Adalats’ for recovery of personal, credit card and housing loans if the loan amount is less than Rs. 10 lakh.

“The number of litigation of banks engaging recovery agents was on the rise in the recent past. It was felt that adverse publicity might result in serious reputation risk not only for the bank concerned but also for the banking sector as a whole”, said RBI in a written statement.

“An urgent need was, therefore, arisen to review the policy, practice and procedure involved in engagement of recovery agents by banks in India. Reserve Bank has, in this background, proposed to issue operational guidelines for adoption by all commercial banks.”, said RBI.

RBI has also asked to Non-Banking Financial Companies (NBFCs) to follow the similar guidelines issued. The Apex bank has appealed to the public to post their views as per these norms within one month via, posting letters, email, fax and phone. The rectified guidelines will be imposed on the banks after government’s approval.

Reserve Bank has also said that the temporary ban could also be imposed over the banks for violating these regulations and it could also be permanent if the violation became frequently as per RBI stated.

If India’s upper courts (High Court and Supreme Court) find out any complaint and slap any penalties or pass any restriction against any bank, RBI would take supervisory action against the bank or its directors or officers or agents with regard to policy, practice and procedure related to the recovery process.

For providing proper training, the banking regulator has asked Indian Banks’ Association (IBA) to develop a one-year certificate course along with Indian Institute of Banking and Finance (IIBF), for training direct sales agents, marketing agents and recovery agents. All the recovery agents engaged with any bank would also have to undergo in the certificate training program conducted and awarded by IIBF as per banking regulatory informed.

Banks are advised not to use the muscle power or any uncivilised manner to the defaulters for colleting the debt. Banks or recovery agents can also neither use unidentified telephones (The banks have to provide the phone numbers to the customer at the time of borrowing that would use for reminding the debt.) nor can go to the borrower’s house in the odd hours for asking the debt.

If banks hire the service of any recovery agency, the agents of the service agency will have to go for proper training and the banks and the recovery agency will also have to follow all the guidelines strictly.

For recovering their debts, bank can take into possession defaulter’s property but only through legal means, which can be soled through auction for getting the repayment. However, banks will also have to send a notice period to the defaulter before repossession and entire procedure for selling and auctioning.

RBI has also suggested to banks of having a due-diligence mechanism for hiring recovery agents that can be used to address the behaviour of the recovery agents and the register the complaint made by the borrowers.

RBI assumes that after strictly imposing these guidelines, the banks will be demoralised as per ‘distributing’ retail loans. Now most of the banks have clogged giving small range personal loans of Rs 25,000 to the lower end of the segment. On the other hand, the banks have to provide the complete detailed list of engaged recovery agencies or agents including bank’s staff to the clients.

In terms of these guidelines, banks were advised that in the matter of recovery of loans (a) The lenders should not resort to undue harassment viz. persistently bothering the borrowers at odd hours, use of muscle power for recovery of loans, etc. (b) The banks should ensure that agents engaged by them for debt collection refrain from action/s that could damage the integrity and reputation of the bank (c) Their agents should not resort to intimidation or harassment of any kind, either verbal or physical, against any person in their debt collection efforts, including acts intended to humiliate publicly or intrude into the privacy of the borrowers'/ credit card holders' family members, referees and friends, making threatening and anonymous calls or making false and misleading representations.

(For detail guideline do visit: http://rbidocs.rbi.org.in/rdocs/notification/PDFs/81568.pdf )